#TradingPsychology

What is Trading Psychology?

Trading psychology refers to the emotions and mental states that help dictate success or failure in trading securities. Trading psychology represents various aspects of an individual’s character and behaviors that influence their trading actions and can be as important as other attributes, such as knowledge, experience, and skill in determining trading success.

Discipline and risk-taking are two of the most critical aspects of trading psychology since a trader’s implementation of these aspects is critical to the success of their trading plan. Fear and greed are commonly associated with trading psychology, while things like hope and regret also play roles in trading behavior.

Key Takeaways

Trading psychology is the emotional component of an investor's decision-making process, which may help explain why some decisions appear more rational than others.

Trading psychology is characterized primarily by the influence of both greed and fear.

Greed drives decisions that might be too risky.

Fear drives decisions that might avoid risk and generate little return.

Behavioral finance has documented several psychological biases and errors involved when making trading or investment decisions.